Renewable energy success comes on the backs of taxpayers

If you live in the United States, vote, pay taxes, and get your electricity from a utility company, you’ve helped the solar power industry. You support the solar industry through a variety of tax and regulatory policies—voted in by politicians you elected—that favor it over other lower-cost forms of electricity generation.

For instance, when you read such headlines as CNBC’s touting “Solar power’s stunning growth,” realize that it’s thanks to you—even if you’ve never even thought of putting solar panels on your roof or live in an apartment where you couldn’t install them if you wanted to.

The CNBC story from December 2014 that claims: “US generation up 100 percent this year,” acknowledges the reality of my postulation. “Four major factors have made the solar surge possible,” it states. It, then, goes on to list them:

The extension of the Investment Tax Credit for renewable energy;

State renewable portfolio standards;

The Obama administration’s pro-solar policies, including friendly environmental reviews, cash grants in lieu of tax credits and guaranteed loans; and

The steep decline in the price of PV.

With such favorable conditions, solar may seem like a fail-safe investment—which is exactly what Sunrun hopes for with its new initial public offering (IPO), expected to raise about $100 million. After all, the Wall Street Journal’s (WSJ) reporting on the Sunrun IPO points to SolarCity’s success: “shares have soared more than sixfold since its 2012 IPO.”

However, before investing, it would be wise to consider the changeable nature of politics. Tim Snyder, President of Agri-Energy Solutions, Inc. told me: “I spent years developing ethanol and biodiesel opportunities. That was in a time when everyone wanted to invest in them. When times were good you could expect payback of your initial investment in less than two years with sky rocketing internal rates of return. All it took to kill investor interest for these projects was for the government to turn its back on the standard corn-based ethanol plant. Remember the old saying, ‘The government giveth and the government taketh away.’”

Sunrun, as WSJ summarizes, “installs solar panels on residential homes either for no upfront cost or at low-cost. Sunrun owns the solar panels and receives monthly payments from homeowners for the power generated by the panels. It also receives government tax incentives to cover its costs.”

Reading through the 234 pages of fine print in Sunrun’s form S-1, filed on June 25 with the Securities and Exchange Commission, it becomes very clear that its past and future success comes from government policies. Government-dependent growth is why, on page 104, under the heading, “Government Regulation,” Sunrun maintains a “policy team to focus on the key regulatory and legislative issues impacting our entire industry.” The term “policy team” is gentlespeak for lobbyists whose sole job is to insure policy favorable to its business model.

Under the heading “Policies and Incentives” the S-1, on page 89, outlines the three specific “federal, state, and local policies” that have “been strong factors affecting the market for distributed solar generation.” They are the Federal Investment Tax Credit (ITC), net metering, and Solar Renewable Energy Credits and “other state incentives.”

The S-1 states: “Tax incentives have accelerated growth in U.S. solar energy system installations.” Under today’s policy, businesses and homeowners who install a solar system can receive a tax credit worth up to 30 percent of the system’s cost—though it is scheduled to drop to 10 percent on January 1, 2017. In bold print, page 18 states: “Our business currently depends on the availability of utility rebates, tax credits and other financial incentives in addition to other tax benefits. The expiration, elimination, or reduction of these rebates and incentives could adversely impact our business.” Extending the ITC is likely a top priority of the “policy team.”

All U.S. taxpayers, then, are paying for solar’s “stunning growth.”

Net metering is essentially a “utility rebate,” that, according to page 18, provides “homeowners with a one-for-one full retail credit within a monthly billing period for electricity that the solar energy system exports to the electric grid.” Interestingly, the only states where Sunrun operates are those states that have “adopted net metering policies.” Sunrun’s S-1 acknowledges, “we rely on net metering and related policies to offer competitive pricing to homeowners” and “changes in net metering policies may significantly reduce demand for electricity from our solar service offerings.”

It is net-metering policies that have made all ratepayers shoulder the tab for solar’s “stunning growth.” As the S-1 points out, homeowners get “a one-for-one full retail credit” for the electricity the system generates. What it doesn’t make clear is that the policy requires the utility to pay the retail rate for electricity whether it needs it or not, and even though it can get lower-priced electricity from conventional sources. As a result, the utility is wasting money and not operating efficiently as a business must to be profitable. This loss is a result of government policy, not bad management. Therefore, to stay in business the utility has to raise rates on all its customers so that the few can benefit. Page 88 points out: “Residential solar has penetrated less than 1% of the 83 million single family detached homes in the United States.”

Many states now revisit the generous net-metering policies put in place a decade ago when solar adoption was miniscule. In Arizona, where solar penetration now ranks as the second highest in the country, homeowners who install new solar systems pay a fee for “plugging into the electric grid of Arizona Public Service.” Solar customers need to plug into the grid. Page 99 explains: “The home’s energy usage is provided by the solar energy system with any additional needs provided by the local utility.”

Tucson Electric Power wants to change to paying wholesale for the excess electricity homeowners sell to the grid—which, according to the Arizona Republic, “may mean solar power would no longer be a good buy for homeowners.”

Louisiana reins in its generous solar tax credits with a bill signed into law on June 19. The Advocatereports: “During the recently adjourned legislative session, they capped solar spending at roughly $20 million next year and put in place tighter fraud controls.”

The solar industry acknowledges that “[a]ny of these changes could materially reduce the demand for our products and could limit the number of markets in which our products are competitive with electricity provided by the utilities.” As Sunrun states: “We focus our resources on markets with high electricity rates, favorable policy environments, and other characteristics that allow for low operational costs and favorable unit margins.”

If you are tired of your tax dollars raising your electricity costs—benefiting the 1 percent while the 99 percent pays twice—your best investment may come at the ballot box.